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Pound Plunges On Brexit Fears

So just what kind of hit are we talking about for sterling due to May’s speech, you ask? Well, that of course is impossible to say ahead of time, but you can bet it won’t be pretty and you’d certainly think we’ll see cable react well before the PM actually speaks.

That’s what I said earlier today with regard to the beleaguered pound which is under tremendous pressure from UK PM Theresa May’s commitment to a “hard Brexit.”

Sure enough, traders have already begun to price in Tuesday’s speech as the GBPUSD plunged more than 1.2% in early Asian trading, falling below 1.20 for the first time since the flash crash.

POUND SLIDES AFTER TIMES REPORTS MAY TO SEEK HARD BREXIT

POUND WEAKENS 1% TO $1.2055 IN EARLY ASIAN TRADING

GBP/USD FALLS 1.2% TO $1.2036, LOWEST LEVEL SINCE OCTOBER

Via Bloomberg

Pound falls as much as 1.2% to $1.2036, weakest since Oct. 7, according to data compiled by Bloomberg.

Reports over the weekend suggest U.K. Prime Minister Theresa May will signal plans to quit the European Union’s single market to regain control of Britain’s borders and laws

The Sunday Times said that May will prepare to withdraw from tariff-free trade with the region in return for the ability to curb immigration, strike commercial deals with other countries and escape the jurisdiction of the European Court of Justice, the Sunday Times said, without saying how it obtained the information

Prime minister’s office declines to comment on the report when contacted by Bloomberg News

Below, find the latest from the Street.

Via Deutsche Bank:

Most important is the Prime Minister’s reported willingness to forgo membership of the customs union. A decision on customs union membership is a preliminary to most other aspects of the Brexit process as, for example, negotiations on third country trade deals cannot begin without it. As has been well documented, a full exit from the customs union would be highly economically disruptive and would compromise investment in major UK export sectors such as autos. In recognition, the government appears to be seeking special privileges for certain sectors. It remains to be seen what the EU response will be, but the strategy is high risk. First, it would amount to a ‘pick-and-mix’ approach to Single Market Access that EU leaders have so far rebuffed. Second, unless a deal was made quickly, companies may trigger contingency plans at an early stage of the negotiations, leaving a later deal meaningless. Leaving the customs union would leave the UK a free hand to negotiate third-country trade deals, such as with China or the US. We are not optimistic, however, that third country deals could replace the UK’s existing trade arrangements soon. Trade deals are highly complex and it would be highly challenging to negotiate them under the current political timetable. The benefits of seeking third-country deals are also questionable given increasing evidence of protectionism and slowing global trade. Today’s news also leaves questions over the future of UK financial services. Reports last week signaled that EU Commission negotiator Barnier was considering transitional arrangements for the City of London to safeguard lending and liquidity in the EU. It is unclear, however, how full UK sovereignty from ECJ decisions can be made compatible with continued bank access to passporting and many aspects of the Eurozone’s financial infrastructure such as Target 2 and euro swaps clearing. The reported hard-line stance is also likely to increase domestic political instability, with many MPs concerned that Single Market Access should be the highest priority for negotiations. It should also raise tensions with the Scottish government, with SNP leader Nicola Sturgeon having pledged her support for a second independence referendum if Scotland does not remain in the Single Market. In terms of next steps, we anticipate a decision on the Supreme Court appeal over the government’s Triggering of Article 50 to be likely on one the forthcoming two Wednesdays. One risk associated with the appeal is that the Supreme Court rules devolved authorities must be consulted as part of triggering Article 50. If so (not our base case), this would leave seemingly irreconcilable differences between Westminster and Holyrood’s political priorities.

Writing about a subject is the best
way to educate yourself about it, and when I flick through past work I remember how much
they taught me, if no one else. Mainly they taught me that I didn’t know very much. But they
also taught me that most other people didn’t know much either. Thus, some key themes
which stand out include the illusory control of policy makers, the presumed knowledge of
those looking to them to actively do good, the ease with which we fool ourselves, and how
best to protect capital in the face of such unavoidable uncertainty. -- Dylan Grice